Michigan

The Detroit skyline is seen from the city's Midtown neighborhood in a photo taken Feb. 12, 2014. Detroit’s creditors and residents are expected to get their first official glimpse this week of the road out of bankruptcy.
( (AP Photo/Carlos Osorio))

DETROIT, MI -- The product of months of negotiations over how and where to slash Detroit's $18 billion debt is expected to be submitted in bankruptcy court Friday.

U.S. Bankruptcy Judge Steven Rhodes from the very first hearing in the case demanded an all-out effort to achieve consensual agreement between the city and its creditors in forming a plan of adjustment, appointing a team of mediators to help avoid a forced, unilateral, debt-slashing “cramdown.”

And Detroit’s state-appointed emergency manager Kevyn Orr, with an expensive team of lawyers, has been meeting behind closed doors with unions, retiree groups, bond insurers and other creditors for seven months to craft one.

The bulk of the city’s debt, according to Orr’s estimates, lies in obligations tied to the water department – about $6 billion, retiree pensions and health care – about $9.2 billion, and general obligation bonds – about $2 billion.

A draft of the plan of adjustment presented to creditors last month called for leasing the water department to Detroit’s suburbs for $47 million a year, giving city retirees $4.3 billion of what they’re owed and paying bondholders about $1.1 billion over 40 years.

It also included a plan for private foundations and the state to contribute $820 million to a fund that would help pensioners absorb the cuts they would take while shielding the Detroit Institute of Arts collection from sale.

The plans would depend on legislative approval of the state’s $350 million contribution and the OK from Detroit’s suburbs on the water deal, neither of which are anywhere near guaranteed.

The plan is likely to have changed after further negotiations based on the draft. And it could continue to change as the city seeks Rhode’s approval.

"Everyone's dream is to have a consensual plan where all of the parties at the table agree to the plan," said Southfield bankruptcy attorney Michael Leib, whose firm Maddin Hauser Wartell Roth & Heller is listed as an interested party in the case.

"That may not happen here… There's going to be talking with all of the various groups to the very last minute ... It's very much a negotiation process.”

The Associated Press reports that the plan will be accompanied by a disclosure statement outlining plans for reinvesting in city services as the city sheds its crippling debt.

"The business climate will start breathing right if it (Detroit) becomes a place where people say, 'I can live here,' and the balance sheet is fixed to the extent it can be fixed," Leib said. "I really am optimistic about what (Mayor) Mike Duggan can accomplish."